Good day, everyone, and welcome to this Entegris' Fourth Quarter 2018 Earnings Call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Bill Seymour, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone. Earlier today we announced the financial results for our fourth quarter and full year 2018. Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties which are outlined in detail in our reports and filings with the SEC. Please refer to the information on the disclaimer slide of this presentation. On this call, we will also refer to non-GAAP financial measures as defined by the SEC and Reg G. You can find our reconciliation table in today’s press release as well as on our website. On the call today are Bertrand Loy, our CEO; and Greg Graves, our CFO. I will hand it over to Bertrand.

Thank you, Bill. I will make some comments on our fourth quarter and full year performance, and then Greg will follow with more details on our financial results and provide guidance for the first quarter of 2019. We'll then open the lines for questions. Let me start by covering Q4 and the full year of 2018. Our fourth quarter capped off a record year for Entegris. During the quarter, sales were up 1% sequentially and grew 15% versus Q4 of 2017, above our guidance. This performance, especially in second half of the year showcase the strength of our execution and the resilience of our unit driven business model. For all of 2018, we grew sales 15%. Organic sales grew approximately 10%, once again outpacing our markets and in line with our expectations. Microcontamination led the way with 12% organic growth as the increasing need for purity drove strong demand for our advanced filtration across the whole range of products. In addition, SAES Pure Gas which we acquired last June was a meaningful contributor to growth in the second half of the year for Microcontamination. The other two divisions also performed strongly in line with our expectations. The AMH business grew 11% and SCEM grew 9% for the year. Consistent with our objective, we grew our bottom line significantly faster than the rate of our top line in 2018. Indeed, our adjusted EBITDA and non-GAAP EPS grew by 22% and 31% respectively. During the year our capital allocation decisions led to additional value creation for our shareholders. First, we acquired three companies, PSS, SAES Pure Gas and Flex Concepts. PSS and SAES, which are equipment businesses, grew sales in the second half over the first half of the year, as demand for these products benefited from the need for greater process…

Thank you, Bertrand. We had many reasons to be pleased with our fourth quarter and full-year performance and execution, which reflected record levels of sales, EBITDA, and free cash flow. Q4 sales of $402 million grew 15% from a year ago. Sales grew 1% sequentially driven by healthy growth in our unit-driven sales. As expected, capital-driven sales were down sequentially with the notable exception of SAES Pure Gas, which was up for the quarter. Q4 GAAP diluted earnings per share was $0.57. On a non-GAAP basis, EPS was $0.47, up 12% from Q4, 2017. Moving on to gross margin, gross margin included the negative impact of $3.4 million inventory write-up associated with the SAES Pure Gas acquisition. Our non-GAAP gross margins of 45.7% were down 100 basis points from last year. The decline in gross margin was driven primarily as expected by the addition of the SAES Pure Gas to the portfolio. We expect gross margin to be approximately 46% on a non-GAAP basis in Q1. GAAP operating expenses of $108.4 million included $17 million of amortization of intangible assets and $1.3 million of integration costs associated with the purchase of SAES Pure Gas. Non-GAAP operating expense in Q4 was $90 million, in line with our guidance. We expect non-GAAP operating expenses to be approximately $92 million in the first quarter. Non-GAAP operating income was $93.5 million or 23.3% of revenue. Our GAAP tax rate was 5% for the full year 2018, reflecting a one-time benefit from reorganization that allowed us to harvest certain legacy tax benefit. Excluding these impacts, our non-GAAP tax rate was 19% for the full year and 21% in Q4. For 2019, we are expecting our non-GAAP tax rate to be 20% to 22%. Adjusted EBITDA for the quarter was $110 million, or 27% of revenue.…

Thank you, Greg. Last week, we announced that Entegris agreed to combine with Versum Materials in the $9 billion merger of equals. This is truly a unique transaction that will bring together two highly complementary and diversified portfolios to create a premier specialty materials company. We believe this combination is a natural fit that will provide significant benefits to our customers, our employees and our investors. We are pleased with the enthusiastic response we have received so far for this announcement. We intend to submit the HSR filing as soon as this week and the S-4 proxy statement by early next month. In conclusion, I'm pleased with the resilience of our unit-driven business model and our record results in 2018. We are very well positioned for another record performance in 2019. Finally, before turning to the Q&A, I want to express my appreciation to the Entegris' teams around the world for their dedication and the quality of their work. Entegris' success is a direct result of their efforts and the service they provide our customers. To all of them, thank you. Operator, we will now take questions.

[Operator Instructions] Thank you. We'll take our first question from Toshiya Hari at Goldman Sachs.

Hi. Good morning, guys. Congrats on the results and congrats again on the announced merger. Bertrand, you're guiding 2019 revenue to grow -- I think you said 5% year-over-year. I was hoping you could provide a little bit more color on 2019 perhaps by segment and also if you can share some of the underlying assumptions you're making around MSI growth and CapEx? That will be helpful. And then, I guess, third part of my first question in the past, I think, you highlighted the focus areas or growth areas within your portfolio. If you can maybe run through a couple of areas that you're particularly excited about in terms of contribution to grow this year that will be helpful? Thank you.

Well, good morning, Toshiya. Thank you for the question. So let me start maybe with some general considerations around the industry environment. It's probably fair to say that we expect the industry to be fairly choppy for the next quarters. Specifically, we expect wafer starts to be up only modestly, so in other words, below the secular growth trend line for wafer starts. And we expect the industry CapEx to be down in the mid-teens in 2019. Having said all of that, we expect more NAND chips to be produced at 64 and 96 layers in 2019 versus last year, and obviously, we expect to benefit from that. We expect from the greater materials intensity and the need for more advanced purification solutions at those more complex geometries. The other thing that should play in our favor in 2019 is that we expect a number of important node transitions in the logic and the foundry segment. So those would be the primary driver. And if I look at 2019, in the context of a fairly muted industry environment, I think that our guidance points to the great resilience of our business model and the quality of our execution, so feeling pretty good about that. Trying to understand or trying to explain maybe where the growth is going to come from, well, you should expect growth to mostly come from Microcontamination and SCEM. As you know, those two divisions have the least exposure to CapEx, number one. But also those are the two divisions where we have invested the most in the past three years. And as a result of that this is where we see probably the most excitement in terms of upcoming growth opportunities for 2019 and -- frankly and beyond.

Great. And then as a quick follow-up, you guys talked about the synergies around SAES contributing to margins, I suppose in the second half. You guys also talked a little bit about potential cost reductions in your AMH business just given the tough backdrop. If you can elaborate on those two dynamics and how we should think about margins into late 2019 and 2020, that would be helpful? Thank you.

Hi, Toshiya, it's Greg. So first of all, with regards to the AMH business -- first of all, when we look at that business, full-year-over-full-year, 200 basis point improvement in the operating margin. We're not -- I'm not defending the business, I'm just saying optically when you look at the last couple of quarters, it feels sort of worse than the full year performance was. As we think about -- as we moved into 2019, we made some significant reorganization within the manufacturing environment within the major facilities within AMH that we think will have a positive impact on the operating margin of that business going forward. With regard to SAES, the SAES synergies, we'll start to see some of those synergies beginning in Q1; the first big move was we closed the facility in San Diego at the end of 2018 and then we'll see the balance of those as we move through 2019. Recall, we talked about total synergies in the $4 million to $5 million range, so it will have an impact but it's not going to be a really significant impact. So we ended the year just short of 33, and MC, we'd expect that to trend up as we move through 2019 closer to that 34 range. Toshiya Hari

We'll take our next question from Sidney Ho at Deutsche Bank.

Great. Thank you very much. Following at Toshiya's question on the revenue side in 2019, how should we think about the first half -- first and second half of the year? I think historically, you've been more first half weighted. I guess another way of asking this is, if you annualize Q1 guidance, you're already up 4% year-over-year. So first is your guidance is up 5%. Do you think the yield will be relatively flat throughout the year?

So Sidney based on the information currently available, I would expect the back end of the year to be up versus the first half of the year. And it's going to be a function of two things. One is, a little bit more favorable CapEx environment in back end of the year, but more importantly a bigger impact from the node transitions that I was describing, both in advanced memory and advanced logic and foundry.

Okay. That's helpful. My follow-up question is on the operating expenses side. You guys have done a pretty good job in the past and I think you guys have talked about the SAES side of things -- some synergies. How should we think about the OpEx level maybe after Q1?

This is Greg. So as we think through the balance of the year, depending on how the industry environment unfolds, I would expect them to be relatively flat, maybe with a slight upward bias as we move through the year.

All right. And maybe just as follow-up to that. How should we think about gross margin as well, as the year progresses?

I think about -- and sort of that the 46% range as volumes increase, we should see some modest improvement through the year.

Moving on to Mike Harrison at Seaport Global Securities.

Good morning, this is Jacob on for Mike. Digging a little bit deeper into SAES, sort of what are the expectations for that business in 2019 and maybe if you could comment what the book-to-bill was in Q4 and sort of how that's shaping up? I know you said backlog was strong, but maybe a little more detail.

Yes. So, Jacob, I -- we don't provide specific backlog information by product line. So I would not do that except that I'm going to try to, nonetheless, help you with your question. So if you think about the velocity of that business as we exit 2019, Q4 for SAES was -- I mean we exceeded $30 million of revenue. So that was up from the high $20 million in Q3. And if you look at 2019 on a full year basis, we expect 2019 to be up versus 2018 and that is obviously in the context of a down industry CapEx environment. So that speaks again to the very unique value proposition that we are able to deliver with those large gas purification systems that talks to the need for much greater purity levels for all array of processed gases going into the advanced labs. And based on the lead time that we have for those systems, we have a really good visibility for what to expect going into 2019. So we feel pretty good about the outlook for that business.

Okay. That's very helpful. And then maybe looking at SCEM margins, so you guys called out the investments in manufacturing and logistics and then unfavorable product mix. Maybe relative to Q4, could you sort of frame how big of an impact each of those were and sort of expectations for the investments in manufacturing and logistics, is that going to carry over into the next couple quarters?

So let me just comment -- I mean the investments are primarily around our Specialty Materials business where we're investing in graphite capacity, we're investing in ramping a new facility, as well we've made meaningful investments in some of our coatings capabilities and I would say -- the volumes need to catch up with the investment. That would be kind of two primary areas where we've made investment. And like I said the investment is ahead of the revenue per se.

Moving on now to a question from Duffy Fischer at Barclays.

Yes. Good morning. You talked a little bit about the increased interest expense, but if we obviously go through an estimate in EBITDA number, can you walk us through the puts and takes on EBITDA down to free cash flow? You mentioned the cost-save program; does that eat cash this year? What do you think kind of working capital does and then what are the capital expenses look like?

So capital -- we expect obviously our EBITDA to be in line with our target model, which is at the revenue levels that we're talking about for the year are in that 28%, 29% of revenue. So our commitment is always to flow at least $0.40 of every incremental dollars of revenue through the EBITDA line. From a CapEx perspective, $110 million in the CapEx for 2019. Taxes which also come into play between the EBITDA and free cash flow line, we talked about 20% to 22%. And then working capital, one of our focus is this year -- I mean our inventories as we come through this year -- through 2018 did creep up a bit and our returns slowed a bit. That's a focus area as we move into 2019 is improving on the inventory side of the house. Receivables, I mean, always tend to be right around 50 days. So those are the primary components of cash flow. And -- does that answer your question, Duffy?

Yes. You bet. Thanks. And then just one housecleaning, of the shares you bought back, how many you buy back in Q4 versus so far in Q1?

So we said we bought back 6 million shares. I don't have the exact breakdown, but the majority of that buyback, probably 4.5 million of it roughly would have been in Q4. So when we think of -- when you think about the share count for Q1 as well as the balance in 2019, you should think about 138 million shares.

We'll move on to Chris Kapsch at Loop Capital Markets.

Yes. Just a follow-up on that -- the share buyback and just capital allocation, in general. I think you touched on this a bit last week when the merger was announced. But -- so you're suspended the buyback. Is the intent there that that would be suspended until closing of the deal just because given the pro forma leverage of, I think, a little over 1 time, and given the free cash flow, the reliable free cash flow of both your portfolio as well as Versum's, I am guessing that you'd be interested in resuming buybacks given your copious free cash flow even on a pro forma basis. So can you just provide color on what that thinking is post-merger?

So, Chris, you're correct. What you heard us say today is that we're suspending the buyback until closing, at which time we'll have to reengage with our new Board and discuss and review all of the available capital allocation options, buyback with being one of the many options would be considering. And you're right in your assessment that the combined company would be a company with very strong balance sheet about 1 time leverage but also a very profitable company. So I'm anxious to have those discussions with the new Board. I'm sure it would be a very productive discussion. But it's too early for us to elaborate on the choices that we'll be making after closing.

Okay, fair enough. And then you did mention that in terms of the sensitivity to a weaker CapEx environment, your businesses felt some of that, but you did mention SAES is being the exception and I think that maybe even surprised you a little bit. So I'm just wondering if you have a sense for what it is about the business and its backlog right now that's kind of shrugging off the software overall macro and end-market backdrop? Is it part of the secular story there or is it demands for those products across legacy and mature nodes as well?

No. Thank you for asking the question. And if you recall, we've had described in many occasions now that we have a number of what we call CapEx products that behave slightly differently than the industry CapEx. So I talked about the gas purification business, but another example would be our FOUP business. Both of those businesses actually grew sequentially in Q4. And reason for that is that the demand for all of those products is really driven by the need for cleaner process conditions. And those requirements are not going to stop anytime soon. And as a result of that, you have actually less of a straight correlation between those -- I mean, the revenue for those product platforms and the industry CapEx. But -- I mean the flip side of that would be some other product lines like gas filtration or our fluid handling businesses did decline sequentially because those products are more tied to WFE. So there was a stronger correlation there. So in other words what we call CapEx in our product portfolio comes in many different shapes and forms and the demand patterns for those products are very different.

Got it, that's helpful. Thanks. And then just one last quick one. In AMH, you mentioned while the industry has a little bit softer near-term backdrop taken out some costs, can you just -- is there any order magnitude in terms of what sort of takeouts you anticipate from those self- help actions? Thank you.

What I would say is we expect -- I mean the operating margin in that business ended the full year 2018 right around 18%. And we'd expect that to trend up through the year probably close to 100 basis points. But we're not looking for a marked shift in that business until volumes on the CapEx side of the industry from background.

Taking our next question now from Amanda Scarnati at Citi.

Good morning. A quick question on kind of utilization rates of your customers. We've been hearing a lot that they've kind of coming down in the fourth quarter instead of first quarter. Can you just talk a little bit about how you'd expect to see that sort of stability in revenue in the fourth -- the first quarter in that sort of industry backdrop of decreased utilization?

Yes. So, Amanda, you're correct and that's part of the assumptions that we're using as we think about the Q1 industry conditions. We expect wafer starts and fab utilization to be down modestly versus Q4 and probably slightly more so than usual seasonal pattern. So what will allow us to do better than that is as I mentioned is, the secular drivers for solution sets and the need that industry has to really to migrate to more advanced materials and more advanced filtration solutions as they start transitioning to more complex geometries. So that's the theme that we've been developing now for number of years. We will be the beneficiary of greater materials intensity and we'll be the beneficiary of greater need for purity. And that's going to help us increase the resilience of our business model versus many other industry participants.

And under those assumptions, we would expect to see that the second half to be specifically stronger, if the node transitions continue as expected in second half and utilization rates pop up. But you're still expecting sort of a 5% growth. Do we see sort of a big step down in the second quarter in terms of what revenue expectations would be or is it really just too early to tell what's going to happen in the full year of 2019?

I think it's just a little bit early days. There's a lot of noise right now in the channels, Amanda. So I think as always, we will be updating our annual guidance every one of our earnings call and when new information and better information becomes available, we'll update if need be our annual guidance.

And then can you just remind us what your current lead times are and how that's changed at all over the last year?

Lead times have been relatively constant across product line. So that's not going to be a big factor in general. Having said that, we have added capacity in our liquid filtration products lines, we are adding capacity as well in graphite, our FOUP platform and even or gas purification business. So we believe that we would be in better position in terms of fully capitalizing on customer demand in 2019.

We'll take our final question today from Patrick Ho at Stifel.

Thank you very much and congrats on a nice quarter. Bertrand, you've talked, at least in your prepared remarks and other times, about the investments you're making in certain areas. I think this call you talked about graphite and how that starting to pay you off for the Company today. Can you give a little bit of color and if you don't want to give a super specific, I understand, but can you give a little bit of color of other areas of investments where over the next few years we'll start to see benefits particularly on the top line?

Well I mean I will repeat what I've said in many calls before. So I view you flagged graphite, but we have made significant investments in a number of filtration and purification technologies, some of which have already hit the market, some have not. And the areas that we've been targeting are wet etch and clean applications for both liquid filters and liquid purifiers, that would be I believe a very significant growth driver going forward for us. We spoke many times before around the investments that we've made in advanced deposition materials. That's an area that we believe is poised growth in the industry and certainly one of the reasons we've decided to combine with Versum. I think our joining forces around some of those advanced process materials is very critical to enable industry technology So we have made investments in the past few years and obviously we'll be accelerating those investments as we join forces with Versum. So what I really like about our portfolio is the diversity and the breadth of the both opportunities that I see. It's across the portfolio. It's across customer segments and frankly it's even across industries. Many of those opportunities are slightly under the periphery of the semiconductor application. So I feel good about the overall quality of the portfolio.

Great. And my follow-up question in terms of the materials business particularly as you mentioned the Advanced Material side; you talked about process of record type of wins in the past. As we look at 2019 as a whole with some of those process of records turning into volume, would you say this year is a little more weighted towards logic and that's when we'll see I guess some of the win and is based on recovery and timing of that or are we going to see some I guess ramps on your end on the memory side as well?

If I think about the unit driven product for our business, I would say it's both. So, obviously, a couple of really important node transitions in our logic and foundry customers. But what will be happening on the 3D NAND segment is also very exciting. I mean, as you know, the greater number of layers on 3D NAND chips the greater the material intensity. And the more challenging the aspect ratios, the greater the opportunity for advanced contamination controls solution. So if you think about what we expect in 2019, we expect about 60% of the NAND wafers to be produced at 64 layers and above. That number was only 40% in 2018. So even if wafer starts are essentially flat for NAND memory fabs, I would expect the material intensity to play in our favor and that will be through 2019 and obviously we expect that to we continue to be true in 2020 and 2021, as well. So the drivers will be both logic and memory in other words. End of Q&A

And with that ladies and gentlemen we will conclude today's call. Thank you very much for joining us. Have a good day. You may now disconnect.